Glossary

Algorithmic trading

Algorithmic trading enables an investor to place an order to buy or sell a defined quantity of currency into a quantitative model that automatically generates the timing of orders and the size of orders based on goals specified by algorithmic parameters and constraints.
Read

Balance of payments

The balance of payments accounts of a country record the payments and receipts of the residents of that country in their transactions with residents of other countries.
Read

Barter

Barter means to trade by exchanging goods and services for other goods and services, not through legal medium of exchange or money.
Read

Barrel

Barrel is a hollow cylindrical container used to store oil, 1 barrel = 119.24 liters’.
Read

Black Gold

In this context, Black Gold means Oil.
Read

Beta

The beta (β) of a stock or portfolio is a number describing the correlated volatility of an asset in relation to the volatility of the benchmark that the asset is being compared to. It is used a measure of volatility
Read

Bowie bonds

Bowie bonds are an asset-backed security which uses the current and future revenue from albums recorded by musician David Bowie as collateral. The annual payments on the bonds are made from money generated from a particular property. For Bowie Bonds, the asset at the core of the investment is the current and future revenues generated […]
Read

Book value

Book value also known as carrying value is the value of an asset according to its balance sheet account balance.
Read

Bretton Woods’s agreement

An agreement signed at the Mount Washington Hotel in the ski resort town of Bretton Woods in 1944 that outlined rules and regulations for an international monetary system.
Read

Brokerage

Brokerage is the fee or commission paid to the broker
Read

Buy and hold strategy

The buy and hold investment strategy is when an investor purchases stocks and holds on to them for many years — decades or until the investor reaches retirement, or even later.
Read

Capital account

Capital account measures the change in ownership of national assets of the country. It comprises of foreign direct investment, portfolio investment, other investment and reserve.
Read

Capitalism

An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.
Read

Check clearing

When banks clear checks, the money is taken from a checking account and sent to the check recipient’s account.
Read

Clearing House

A clearing house provides clearing and settlement services for transactions which are commodity based or financial in nature
Read

Coin Hoard

A coin hoard is a group of coins whose discovery makes it clear that the hoard was deliberately buried in a group.
Read

Common Effective Preferential Tariff

Common Effective Preferential Tariff (CEPT) is an agreed effective tariff, preferential to ASEAN, to be applied to goods originating from ASEAN Member States, and which have been identified for inclusion in the CEPT.
Read

Cowrie

Shell of large sea snail which has an egg like shape and flat on the underside.
Read

Current account

Current account measures the foreign trade of the country
Read

Current account convertibility

Current account convertibility means that foreign exchange can be freely bought and sold provided its use is associated with international trade in goods and services
Read

Capital account convertibility

Capital account convertibility means that foreign exchange can be freely bought and sold to purchase foreign financial assets or equity investments. Capital account convertibility regulations impact areas such as Authorized Dealers, Foreign Direct Investment, Foreign Institutional Investment, Bonds, Venture Capital, Bonds, Derivatives, Setting Up of Branch Offices and Borrowings and Investments by Non-Residents, Borrowings in foreign […]
Read

Cross rates

Cross rates usually refer to two currencies that are traded which do not involve US dollars.
Read

Currency trading

Currency trading refers to buying and selling of currencies by individual retail investors, financial institutions, and corporations doing business.
Read

Day trading

Day trading refers to buying and selling of securities closing all positions within the same trading day. Traders who actively participate in day trading are known as day traders.
Read

DCF value

Discounted cash flow is a method used to project the value of the security using time value of money, the sum of all future cash flows in present tense.
Read

Disposable income

Disposable income is total income minus taxes. In other words, consumption plus saving equals disposable income.
Read

Double coincidence of wants

In barter trade, one party must want what the other party has and the latter party simultaneously wants what the first party has.
Read

Dollar cost averaging

Dollar cost averaging is also known as constant dollar plan and it is an investment strategy of buying a fixed dollar amount of a particular investment on a regular basis, regardless of the share price.
Read

Dotcom

Dotcom (.com) are companies who rely heavily on internet commerce for business.
Read

Economies of scale

When more units of a good or a service can be produced on a larger scale, yet with less input costs, economies of scale are said to be achieved. Economies of scale are generally achieved in learning inputs, specialized inputs, transportation costs and support industries.
Read

Economic downturn

Economic downturn refers to a drop or reduction in the success of a business or economy.
Read

Electronic money

Electronic money is a payment instrument whereby monetary value is electronically stored on a technical device in the possession of the customer.
Read

Entry Order

This kind of order is executed when the price touches a pre-specified level.
Read

Equities

An instrument that signifies an ownership position, or equity, in a corporation, and represents a claim on its proportionate share in the corporation’s assets and profits.
Read

European joint float

The European joint float was established by West Germany, France, Italy, Netherlands, Belgium and Luxembourg to manage their currencies so that their exchange rates moved in tandem.
Read

Expatriate

To leave one’s native country to live elsewhere, an expatriate is any person living in a different country from where they are a citizen.
Read

Fed wire

Federal Reserve wire network is a real-time gross settlement funds transfer system operated by the United States Federal Reserve Banks that enables financial institutions to electronically transfer funds between its more than 10000 participants.
Read

Foreign exchange restrictions

Foreign exchange restrictions are measures taken by Member States in the form of restrictions and other administrative procedures in foreign exchange which have the effect of restricting trade.
Read

Foreign Exchange Swap

Foreign exchange restrictions are measures taken by Member States in the form of restrictions and other administrative procedures in foreign exchange which have the effect of restricting trade.
Read

Federal funds rate

The federal funds rate is the interest rate on overnight loans between banks in the U.S.
Read

Fisher effect

According to the Fisher effect, nominal interest rates will adjust to expected inflation rates.
Read

Financial economy

Financial economy is the domain of markets and provides finance to the real economy.
Read

Financial instrument

A document such as a check, draft, bond, share, bill of exchange, futures or options contract that has a monetary value or represents a legally enforceable agreement between two or more parties regarding right to payment of money.
Read

Financial market

A financial market is a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand.
Read

Forward rates

Forward rates can be quoted in two ways – as an outright quote or as forward points. The outright quote is simply a bid-ask price similar to spot market quotes. The forward points are the amounts that need to be added to or subtracted from spot rates. The forward premium or discount is typically the […]
Read

Globalization

Globalization is the tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe, thereby increasing the interconnectedness of different markets.
Read

Gresham’s law

Gresham’s law is a law about money in circulation and its basic premise is that bad money drives good money out of monetary system.
Read

Great depression

Great Depression is referred to the worldwide economic downturn that began in 1929 and lasted until about 1939.
Read

Hedge fund

A hedge fund is a pooled investment vehicle administered by a professional management firm.
Read

Hedgers

Hedgers are usually the buyers or the sellers who are interested in passing or offsetting the price risk or potential loss to another party.
Read

High yield bond

High yield bonds are also known as junk bonds, these are high paying bonds with lower credit rating because of the risk associated. Investors of high yield bonds can expect a return of 200-300 basis points more than investment-grade bonds.
Read

Implied volatility

Implied volatility is the estimated volatility of a currency’s price. It increases when markets are bearish on that currency and decreases when markets are bullish. This is because bearish markets are perceived as more risky than bullish markets.
Read

Index fund

Index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor’s 500 Index (S&P 500).
Read

Inflation

Inflation is a persistent increase in the general price level of goods and services in an economy over a period of time.
Read

Investor sentiment

Investor sentiment represents the overall attitude of the investor towards the market or security.
Read

Limit Order

An order to take profit at a pre-specified level
Read

Liquidity

Liquidity is the quality of being readily convertible into cash.
Read

Liquidity

Liquidity is the quality of asset, investment or security to readily convertible into cash.
Read

Markets

Markets are structures that require communities of people to run them.
Read

Market capitalization

Also known as market cap refers to total value of company measured by multiplying the share price by the number of shares outstanding.
Read

Market maker

A market maker is a dealer who quotes buying and selling prices for one or more currencies to his customers, seeking to make a profit from the difference between the buying and selling prices.
Read

Market Order

Market order is an order at the current market price.
Read

Market value

The highest price a willing buyer would pay and a willing seller would accept, both being fully informed, and the property is exposed for sale for a reasonable period of time.
Read

Money supply

The money supply is commonly defined to be a group of safe assets that households and businesses can use to make payments or to hold as short-term investments.
Read

Non-financial information

Non-financial information refers to information that falls outside the scope of mainstream financial statements such as quantitative and qualitative data on the policy pursued, the business operations and the results of policy in form of outcome.
Read

Non-Tariff Barriers

Non-Tariff barriers are the measures other than tariffs which effectively prohibit or restrict import or export of products within Member States.
Read

Non-deliverable forward

Non-deliverable forward is offered by banks, these are forward contracts on non-convertible currencies or thinly traded currencies.
Read

One cancels the other (OCO) order

One cancels the other (OCO) order is a set of two orders whereby if one is executed, the other is cancelled.
Read

Option

Option is a contract that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).
Read

Per-Capita income

Per-Capita income is the mean income of the people of the country. It is calculated by dividing the total income of the country by its population.
Read

Prime brokerage

Prime brokerage typically refers to an investment bank’s package of services to clients, mostly hedge fund clients. The benefit of such a service is that it centralizes a number of tasks such as securities clearing, custody, financing leverage, foreign exchange trading, securities lending etc.
Read

Price-Earnings ratio

Price-Earnings ratio is a valuation ratio of a company’s current share price compared to its per-share earnings.
Read

Privatization

Privatization is the tendency to change (an industry or business, for example) from governmental or public ownership or control to private enterprise:
Read

Productivity

Productivity is an economic measure of output per unit of input – say labor, capital or raw material.
Read

Quantitative restrictions

Quantitative restrictions are prohibitions on trade with other Member States, whether made effective through quotas, licenses or other measures with equivalent effect, including administrative measures and requirements which restrict trade.
Read

Random Walk Model

The random walk model is based on an investment theory that says market prices follow a random path up and down.
Read

Rational market economics

Rational market economics is also known as efficient market economics where all pertinent information is available to all parties at the same time and where prices respond immediately to such available information.
Read

Regulated Exchange

Regulated exchange is also known as a ‘bourse’ is a regulated market place for buying-selling of equities, commodities, currencies through futures and option contracts.
Read

Refinance

Refinancing refers to replacing one debt obligation with another debt obligation usually with different terms.
Read

Real economy

In the real economy people create services and products and deliver to each other, real economy is financed by the financial economy.
Read

Return on equity

Return on equity is a financial ratio that measures the return generated on shareholder’s equity, the accounting value of shareholder’s equity which reflects the accumulation over time of amounts received by the company from share issue plus profits (retained earnings) by the company. The formula can be expressed as Profit after tax/shareholder’s equity.
Read

Risk free rate

Risk-free interest rate is the theoretical rate of return of an investment with zero risk, including default risk.
Read

Settlement

Settlement of securities is a business process whereby securities or interests in securities are delivered, against payment of money.
Read

Special Drawing Rights

The International Monetary has power to issue Special Drawing Rights (SDRs) which members could add to their holdings of foreign currencies and gold held in their central banks
Read

Speculators

Speculators are market experts who take the risk away from the hedger with an anticipation of making profits through market movement.
Read

Spot transactions

Spot transaction is a single outright transaction involving the exchange of two currencies. Spot transactions are done at an agreed rate on the date of the contract for value or delivery typically within two business days.
Read

Stop-Entry Order

An order to buy above or sell below the market at a pre-specified level on the view that price will continue in the same direction from that point.
Read

Stop-Loss Order

An order to limit losses at a pre-specified level
Read

Stock market crash

A stock market crash refers to a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth.
Read

Strategic Value

Strategic value is the value the company sets on another purely for business purpose.
Read

Stock analyst

Stock analyst also known as financial, securities, equity or investment analyst is a person who performs financial analysis for clients as a core part of his/her job.
Read

Substitution effect

An effect caused by a rise in price that induces a consumer (whose income has remained the same) to buy more of a relatively lower-priced good and less of a higher-priced one. Consumers always to tend to shift from spending on higher priced product to a lower priced one as the prices rise.
Read

Subprime bonds

Subprime bonds are mortgage backed securities/bonds sold to the investors. Loans are securitized by converting into bonds. Subprime bonds are also known as securitized loan packages.
Read

S&P Index

Standard & Poor’s 500, is a stock market index based on the market capitalizations of 500 large companies having common stock listed on the New York Stock Exchange (NYSE) or National Association of Securities Dealers Automated Quotations (NASDAQ).
Read

Term structure of interest rates

The term structure of interest rates is typically defined as a yield curve displaying the relationship between spot rates of zero-coupon securities and their term to maturity. This concept is derived from the ‘yield curve’ which describes the relationship between interest rate and tenor/time to maturity across various tenors; 2 to 20 years. Shape of […]
Read

Transshipment

Transshipment is considered as a legal term and involves transfer of goods/container from one conveyance to another for reshipment. For example sea transport to road transport. Shipments involving more than one mode of conveyance issue multi-modal shipment document which is a single document covering the entire shipment.
Read

Trade deficit

A trade deficit represents an outflow of domestic currency to foreign markets. Trade deficit or surplus is derived from Balance of payments which keeps an account of both current and capital account transactions.
Read

Treasury bonds

Treasury bond is a marketable, fixed-interest debt security issued by U.S government with a maturity of more than 10 years. Treasury bonds are also known as Government bonds and carry highest investment security.
Read

Uncovered interest rate parity

The uncovered interest parity depicts that the difference in interest rates between the two countries reflects the rate at which investors expect the high- interest rate currency to depreciate against the low- interest rate currency. Premiums and discounts on forward rates are based upon interest rate parity between the two countries/currencies involved in the transaction.
Read

U shaped downturns

U shaped downturn is a graphic representation of a security when its value falls to hug bottom before its price rebounds.
Read

Underwriters

Underwriters provide a service to large financial service provider to assess the eligibility of a customer to receive their products. Underwriters provide services to banks, insurance companies and corporations.
Read

Unrealized gains

Unrealized gain occurs when the value of the stock appreciates after the investor has purchased it. Unrealized gain is more of a notional gain. Such a gain is said to be realized only after the investor has sold such a stock.
Read

V shaped downturns

V shaped downturn is a graphic representation of a security price when it rapidly falls followed by a rapid rise.
Read

Volatility

Volatility is the characteristic of financial instrument changing its price often and unpredictably. Chicago Board Options Exchange Market Volatility Index (VIX) measures and represents stock market volatility over next 30 days.
Read

Wealth effect

Changes in aggregate demand caused by change in the value of assets such as stocks, bonds, gold, property. Increase in the market value of these assets induces a feeling of being ‘richer’ in their owners and often tends to encourage spending and dampen savings
Read

White labeling

White labeling allows smaller banks and financial institutions to outsource their currency pricing to providers with large liquidity bases like big global banks.
Read

Zero coupon bonds

Zero coupon bonds are bonds that do not pay interest during the life of the bonds. When a zero coupon bond matures, the investor will receive one lump sum equal to the initial investment plus the imputed interest.
Read

Documentation

Documentation is an act of instance of submitting or supplying documents.
Read

Electronic fund transfer

Any transfer of funds from one account to another which occurs electronically is known as an electronic transfer. Federal benefit, wage, salary, retirement fund, pension, bill or vendor payment can be effectively transferred through electronic transfer thereby eliminating the requirement of checks, deposit slips and lengthy forms.
Read

Float time

Float time is the amount of time between an individual submitting a payment via check and the time that individual’s bank gets the approval to move funds from the individual’s account. In India the float time is 2 banking days and in U.S the float time is 1 banking day, float time varies from country […]
Read

Open account

An open account transaction is a sale where the goods are shipped and delivered before payment is due.
Read

All-risks policy

All-risks policy is also known as ‘institute cargo clauses (A, B, and C)’ is the broadest form of insurance cover. It usually mentions only the exclusions and all the unnamed risks are covered.
Read

Acceptance

An assent and engagement by the person or entity on whom a bill of exchange is drawn, to pay it when due according to the terms of the acceptance. An act of issuing an letter of undertaking to pay on the said due date is also considered an acceptance.
Read

Agreement

Agreement is a negotiated and legally enforceable understanding between two or more legally competent parties.
Read

Acquisition

Acquisition or takeover is an act of acquiring, procuring or buying. Acquisition is a growth strategy.
Read

Array

An array is a systematic arrangement of objects, usually in rows and columns.
Read

Standard deviation

Standard deviation (σ) is the square root of the variance. In other words Standard deviation brings out all the examples clustered around the mean of the data. If the data is spread apart or skewed the standard deviation will be high. Hence stock with high volatility will have a higher standard deviation whereas as stable stock […]
Read

Absolute advantage

Absolute advantage refers to an economic pattern wherein a nation or a company uses fewer resources-per-unit of production than its competition. Warren Buffett invests in company who have absolute advantage.
Read

Aggregates

Aggregates is the market study taken as a whole in relation to their individual components.
Read

Anarchism

Anarchism is an economic theory promoted by Mikhail Bakunin in the 19th century which calls for very small autonomous groups who work collectively in an economy with no central authority.
Read

Arbitrage

Arbitrage is a form of risk free trading wherein the trader buys in one market and sells in another to take advantage of price differentials between the two markets.
Read

Austerity Measures

Austerity measures are extreme fiscal policies imposed upon a country by its Government in hopes of protecting the nation from economic decay.
Read

Barrier to entry

Barrier to entry refers to various obstacles, both formal and informal that prevent potential participants from entering an economy or marketplace. Formal barriers could be taxes/tariffs and informal barriers could be cultural differences.
Read

Bilateral Trade

Bilateral trade refers to trade and commerce between two countries.
Read

Black market

Buying and selling of products and commodities or engaging in exchange of foreign currencies in violation of government restrictions.
Read

Bond market

Bond market is that sector of financial market that buys and sells securities in the form of private and governmental debt with set redemption dates.
Read

Boom phase

Boom phase is a period of great economic growth accompanied by large gains in per capita income.
Read

Bullion

Bullion is either gold or silver in bulk form regarded as raw material for use in industry, coinage or as a nation’s reserve. Bullion refers to precious metals in bulk form which are regularly traded on commodity markets. The value of bullion is typically determined by the value of its precious metals content, which is defined […]
Read

Business cycle

Business cycle is a regular cycle of growth and contraction in an economy that dictate overall stability. The relative severity of business cycle can be affected by domestic business, politics, natural phenomena, and external trade.
Read

Buyer of last resort

Buyer of last resort is an economy whose stability, strength and regular levels of consumption permit it to assist smaller and troubled economies through the purchase of goods and services during the period of economic crisis.
Read

Capital

Financial, physical and intellectual assets that are used to produce goods and services. Capital is one of the most important factor of production.
Read

Capital flight

Capital flight refers to transfer of money or financial resources from one country to another as a hedge against inflation or poor economic or political conditions.
Read

Capital goods

Capital goods are manufactured goods that are for productive industrial use. Example: machinery and tools
Read

Capital gains

Capital gains include the profits derived from the sale of an asset, or the increased value of an asset from time of purchase until the present.
Read

Capitalism

In capitalism the owners and managers of assets derive the greatest portion of profit from the use of those assets.
Read

Venture capital

Venture capital is the capital invested in high risk projects by private companies or individuals in search of a higher-than-average return on investment.
Read

Containerization

Containerization is the system of using a shipping container which is made of steel and standard in size and dimension to load, unload, stack and transport merchandise efficiently over long distances. Containerization facilitate transportation of merchandise through multi- modes of transport.
Read

Beta

Beta is asset’s sensitivity to market risk. Stocks that carry higher beta ( greater than 1) are considered to be more volatile than market and therefore should have higher expected returns. Capital Asset Pricing Model (CAPM) presented by Stanford professor William Sharpe explains the theory of beta.
Read

Volatility Capture

Volatility capture is a process of rebalancing ; which sells when the market is up and buys when the market is down. Rebalancing or Volatility capture leads to market fluctuation.
Read